Partners in business
Partnership agreements
In Western Australia, partnerships are governed by
the Partnership Act 1895.
A partnership can be a satisfying, profitable and
enduring form of business relationship. However,
not all are successful and can result in a breakdown
of relationships, and loss of personal assets if debts
are incurred.
Before starting a business, potential partners need
to agree on the terms and conditions that will
apply to their partnership, to avoid future conflict
and misunderstandings.
Where there is no agreement in place, each
partner is deemed to own equal shares of each
asset as prescribed by the Partnership Act 1895.
A legally binding agreement is advisable for all
partnerships. A lawyer will be able to assist in
documenting this agreement and providing a copy
to all partners.
TIP: Don’t assume that friends and relatives
will make good business partners. They may
not have the necessary attributes to be a good
business person.
A formal agreement is important because:
Key considerations
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Personal liability is unlimited for each partner in
the business.
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You will be held liable for any shortfall if the
business fails and a partner can’t afford to pay
their share of any debts incurred.
Before meeting with a lawyer it is a good idea for
potential partners to get together to discuss key
considerations such as:
•
You are jointly responsible for any debts
your partner incurs, with or without your
knowledge.
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Each partners contribution of their time, effort,
money and assets.
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The share of profits and losses.
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Partnership salaries.
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Participation in the management of the
business.
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The procedure for resolving disputes.
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The procedure for ending or resigning from
the partnership.
Contributions of each partner
Small Business
Development Corporation
•
How much money will each partner bring to
the partnership?
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How will percentage of ownership be decided?
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How will the day-to-day operations of the
business be managed?
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What happens if the business needs more
money? Will the partners have to invest
more, look for other investors or dissolve the
partnership?
Death or disability
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What will happen in the event of death or
disability of a partner?
What level of involvement should beneficiaries
have in the partnership?
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Who can decide on whether to allow new
partners to enter the business?
•
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What time period do partners need to remain
in the business before they can voluntarily
leave?
Proceedure for resolving disputes
•
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How long is the partnership expected to
operate? This could be indefinitely or for a
defined time period.
How will ownership rights of partnership
property be assigned?
Salaries and share of profits and losses
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How will disagreements be handled?
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Does the procedure allow for mediation or
arbitration of disputes?
Procedure for ending or resigning from
the partnership
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What will happen if a partner wants to leave or
the business is to be sold?
•
How much notice does a partner need to
provide of their intention to leave?
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How will the profits be divided?
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What will the salaries be?
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How will partners access bank accounts and
funds?
How will outstanding debts be paid in the
event of the partnership being dissolved?
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In what circumstances may a partner be
involuntarily removed from the partnership?
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What rights will departing partners have if they
want to start a similar business?
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Who is going to provide the financial reports?
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Will partners be repaid for their investment in
the business? When will this occur?
Participation in the management of
the business
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What will each partner do in the company –
their roles and responsibilities?
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How often will management meetings occur?
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What business decisions will require either a
majority or unanimous vote of the partners?
•
Who can bind the partnership in a contractual
agreement?
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How will partnership assets be managed? How
will the sale of assets be decided?
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What level of financial liability (dollar amount)
is acceptable before unanimous consent of all
partners is required? Will liability under that
amount only require the consent of a majority
of partners?
More information
Seek assistance from a lawyer to write your
partnership agreement. You can obtain referrals to
lawyers through the Law Society of WA.
A full detail of the Partnership Act 1895 is available
from the State Law Publisher.
To the extent permitted by law neither the Small Business Development Corporation, nor the State of Western Australia, nor any of their respective officers or employees shall
be liable in negligence or howsoever, for any loss, damage or liability incurred by anyone who relies upon this publication or any part of it on account, wholly or in part, of this
publication or any aspects of it becoming inaccurate, incomplete obsolete, out of date, or in any way deficient.
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